E&S Market Likely to Suffer as Major Players Squabble
Insurance Experts' Forum, September 19, 2013
Disputes within our industry are hardly unusual despite contract-certainty and a whole heap of regulation. Parties often disagree about how a risk has been presented, policy interpreted or a claim adjudicated. Sometimes things can get a bit ugly, end up in court, and on occasion, businesses who were previously friends can find themselves at opposite ends of a legal wrangle. Surprising as it might seem, however, most combatants in the market kiss, make up and move-on once the quarrel is resolved; after all, it is only business.
That said, a few grudges, of course, fester on. The Insurance Insider recently reported that Ace has removed Atrium from its reinsurance security list because of earlier run-ins with the latter’s new parent Enstar; this could be such a case in point.
Yet with due respect to these great companies, that alleged row seems like “handbags at dawn” when compared to what might be kicking off between AIG and Berkshire Hathaway. Clashes between companies over people are always the rawest, and Berkshire hiring the senior AIG Excess & Surplus Lines team was bound to cause ructions. If AIG is poised to cancel all its reinsurance ties with Berkshire in retaliation, which seems likely, then hostilities may escalate. These skirmishes and the prospect of the two giants slugging it out, already have been enough to intensify the downward pressure on property/casualty rates in the U.S. E&S market.
At the root of this acrimony is an industry desperately coming to terms with a rapidly changing distribution landscape. Traditional roles are fracturing and there is plenty of turf to be fought over. Hedge and pension funds are displacing reinsurers who in turn are making significant incursions into the territory of primary insurance carriers. At the same time, the major brokers are aching to assume more of the function of insurers and reinsurers and access capital directly themselves. It is a high stakes game and the key protagonists clearly have the firepower to cause havoc, so more brutality may be on the horizon. Although maligned in some quarters, we may look back with fondness to the clubby London Market of old where at least scores could be settled behind closed doors over a decent bottle of claret, without turning the market on its head.
This blog was originally published on Roger Bickmore's website, "The Lookout."
Roger Bickmore is the Group Business Development Director at Kiln Group, insurance underwriters at Lloyd's of London.
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